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The Wall Street Journal: Oil Surges Above $98 a Barrel

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The Wall Street Journal: Oil Surges Above $98 a Barrel

Inventory Data
To Become Focus;
Gold Touches $800
By MATT CHAMBERS
November 21, 2007; Page C8

Crude-oil futures surged to a record settlement high above $98 a barrel as the dollar fell, potentially paving the way for another run at $100.

Expectations of colder weather toward the end of the month in the Northeast, the world’s biggest heating-oil market, as well as a fire at an oil-sands upgrader in Canada and positioning before key weekly U.S. inventory data also boosted crude prices.

Light, sweet crude for January delivery on the New York Mercantile Exchange rose $3.39, or 3.6%, to settle at $98.03 a barrel, a record for a front-month contract. Prices rose as high as $98.62 after contract settlement, equaling the record reached Nov. 7.
 
“The rise in crude is relentless, and it’s going higher for the same reasons: the dollar keeps getting crushed, supplies are tight…and there are geopolitical issues” that could crimp the flow of oil if they worsen, said Tom Bentz, an analyst at brokerage BNP Commodity Futures in New York. “I can see us going well over $100.”

Prices are still below the inflation-adjusted record price of U.S. benchmark West Texas Intermediate crude oil of $102 a barrel set in April 1980.

All eyes will turn now to U.S. inventory data due at 10:30 a.m. EST today, which could push prices above $100 a barrel. Analysts expect a rise in crude oil stocks according to a Dow Jones Newswires survey, but the latest price gain indicates many are betting on another decrease in stockpiles, which have fallen three times in the past four weekly reports.

“All you need is a surprise draw in the statistics and we could easily print new highs,” said Tony Rosado of IAG Energy Brokers in Fort Lauderdale, Fla.

The dollar fell to a fresh record low against the euro after minutes from an Oct. 31 Federal Reserve rate-setting meeting led to some expectations of more interest-rate cuts. The dollar’s weakness has been an important factor in crude’s recent record-breaking run, increasing the buying power of traders using other currencies and blunting the effect of higher oil prices in countries outside the U.S.

Dollar weakness gave the biggest boost to crude prices, but expectations for increased weather-related demand and some actual supply glitches in Canada and Mexico, both major exporters to the U.S., added support.

The Northeast, which got snow in many parts Monday, is forecast to get colder-than-normal weather from Nov. 25 until at least Dec. 3, according to the National Weather Service’s midterm-outlook forecasts. The expectations come as most forecasters are predicting a warmer-than-normal winter and Thanksgiving Day.

Winter heating demand, both through heating oil and electricity in countries that use fuel oil, is expected to make for a big supply gap in the fourth quarter, according to many predictions. How far temperatures deviate from normal, in either direction, will play a big part in price moves in coming months.

“The forecasts for colder weather are giving it a boost, at least until somebody comes out and downgrades the forecast” to warmer weather, said Michael Cambria of Eagle Futures, on the Nymex floor.

A fire at a 155,000 barrels-a-day Royal Dutch Shell PLC oil sands upgrader near Edmonton, Alberta, also boosted prices.

In other commodity markets:

NATURAL GAS: Futures ended almost 4% lower as high storage levels and forecasts for relatively mild weather during the Thanksgiving holiday weekend put prices on a downward trajectory. Natural gas for December delivery on the New York Mercantile Exchange settled floor trade 31 cents lower, or 3.98%, at $7.477 per million British thermal units after reaching a low of $7.459 per million BTUs in combined electronic and floor trade earlier in the day.

GOLD: Futures rallied as the U.S. dollar slouched and crude oil flexed its muscles, gaining back more than what they lost in selling during the previous session. Nearby November gold gained $13.50 to $790.30 an ounce while most-active December gold rose $13.40 to $791.40. In the thinly traded after-hours session December gold broke above $800.

Write to Matt Chambers at [email protected]

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